March 2020

Brexit - Potential Tax Implications

by Dr John McMullen

As of 'exit day' (11 pm on 31 January 2020), the UK ceased to be an EU member state and no longer participates in the political institutions and governance structures of the EU. However, in accordance with the transitional arrangements provided in Part 4 of the Withdrawal Agreement, 'exit day' marks the commencement of an 11-month implementation period (IP) during which the UK will continue to be treated by the EU as a member state for many purposes.

Under the current terms, the implementation period runs from 'exit day' until IP completion day (11 pm on 31 December 2020). During this period, the UK must continue to adhere to its obligations under EU law (including EU treaties, legislation, principles and international agreements), and submit to the continuing jurisdiction of the Court of Justice of the European Union (CJEU) in accordance with the Withdrawal Agreement.

'Exit day' is still key in terms of being the date the UK ceased to be an EU member state, but in terms of the legal impact, IP completion day is the date that the majority of key domestic legal changes associated with Brexit will take effect, including the full repeal of the European Communities Act 1972, incorporation of retained EU law into the domestic legal regime and commencement of associated Brexit legislation, including Brexit SIs.

During the implementation period, the UK and EU are looking to reach an agreement on their future relationship in accordance with the framework set out in the Political Declaration, agreed alongside the Withdrawal Agreement (although not legally binding).

At the time of writing, the European Council was expected to grant the European Commission a mandate to commence negotiations on the future trade deal between the UK and the EU. On the UK side, the requirement for Parliament to sign off on the UK's negotiating position was removed by the European Union (Withdrawal Agreement) Act 2020 (EU(WA)A 2020), so there should be no hold-up from the UK side in that respect.

By the end of June 2020, the UK will need to decide whether it wishes to request an extension to the implementation period beyond 31 December 2020, as this would need to be agreed with the EU by 1 July 2020. It should be noted that EU(WA)A 2020 contains a provision amending European Union (Withdrawal) Act 2018 (EU(W)A 2018) to prohibit extension being agreed – in line with the Government's political commitments not to extend the implementation period. Although an extension may seem politically unlikely at this stage, Parliament has the power to remove the restriction, or Ministers could potentially sign up to an alternative extension which falls outside the terms of the restriction.

If no extension is agreed, the implementation period will come to an end on 31 December 2020. It is the UK Government's hope that a comprehensive trade deal will be in place by then but, if it is not, the default position is that Great Britain's trade with the EU will be governed by World Trade Organization rules, with some specific controls imposed on goods flowing between Northern Ireland and Great Britain in accordance with the Protocol on Ireland/Northern Ireland.

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